Senate Republicans may provide higher federal funding to states with low Medicaid costs in their health care bill. The proposal under consideration gets to the heart of a key sticking point in the ongoing GOP discussions to overhaul the U.S. health care system: how to equitably treat states with drastically different Medicaid spending levels.

Medicaid, the structure of tax credits and other issues are among the big disputes that Senate Republicans need to resolve, said Senate Majority Whip John Cornyn, R-Texas, on Wednesday. When asked if the Senate would vote by its self-imposed July Fourth goal, he demurred.

“That would be a good goal. But I would say give us a little more time,” he said. “The end of July by the latest. If we can do it earlier, that’s good.”

Senators have a lot of work remaining. “Nothing’s written yet,” Cornyn said.

The health law (PL 111-148, PL 111-152) created a Medicaid expansion that offered states enhanced federal funding for people who qualify under broader eligibility guidelines of up to 138 percent of the federal poverty line. Thirty-one states plus the District of Columbia opted into that expansion.

Now Republicans are negotiating a way to provide equal funding to states with low Medicaid spending costs like Alabama and high-cost states like Alaska.

“We’re trying to find a way to provide some recognition that some of the low-cost states should be recognized for their efficiency,” Sen. Michael Rounds, R-S.D., told CQ Roll Call. “If you have a larger base to begin with because of higher costs within your system and you build a multiplier in for additional costs in the future, those with a higher cost upfront now would have a higher multiplying factor.”

The House-passed bill (HR 1628) would restructure the finances of giant health program and switch it from an open-ended entitlement to a capped system. Lawmakers are seeking to resolve fights over the formula for those caps. The House bill would use a state’s Medicaid spending in 2016 as a baseline to determine how much that funding would increase year over year. Some senators are concerned, however, that such a system would effectively punish states for what they say is more effective management of Medicaid.

One option under consideration, according to several lawmakers, is to use a more robust growth rate to determine yearly increases in federal funding for the Medicaid program for just those states that used less of the government’s money in a given year. It could be modeled on ideas proposed earlier this year by Sen. Bill Cassidy, R-La.

But while Republican members like Sen. Ron Johnson of Wisconsin, a state that choose not to expand its entitlement program, are pushing for a balance, the concept of increasing the flow of federal money overall has not been fully embraced by the party.

“When you take a look at the money spent in Medicaid expansion, it’s a lot of money, and if we lock in that disparity that’s a disadvantage to states like Wisconsin. So yeah, I’m concerned about that,” he told CQ Roll Call. “I would rather not do it by spending more money.”

Johnson called the divide over how to tackle the disparities between states a “significant one.”

Lawmakers who represent states with high Medicaid expenditures each year are pushing back against the notion that it can be attributed to bad management of the program.

“We have to look at structural differences. Sometimes higher cost is not because the program is not well managed or well run. It’s because you might live in a big rural state with not a lot of health care providers,” Sen. Dan Sullivan, R-Alaska, said.

Decisions Ahead

The lingering questions over what to do on the issue was a highlight at Tuesday’s GOP policy lunch, which included an appearance from Centers for Medicare and Medicaid Services Administrator Seema Verma.

The discussion went beyond just providing more federal money to states with low-Medicaid costs, however, and also touched upon how to encourage efficiency in the entitlement program, according to Sen. John Hoeven, R-N.D.

“We’ve got to create the right incentives . . . to encourage cost effectiveness and good outcomes,” he said.

Under the House bill, states would be given essentially a bulk amount of funding for specific categories based upon population, an approach referred to as per capita caps. States also could choose to get it in a lump sum block grant.

Hoeven is advocating for a proposal that would allow states to bank any unused federal allotment for future years.

“I specifically asked what [Seema] thought about that concept . . . and she supported it,” he said.

The disagreement among the conference over such a critical aspect of the legislation, however, proves how much work Republicans have left on the bill. While leadership has begun discussions with the Congressional Budget Office over several proposals, there is currently no complete legislation and several members are still unsure exactly what proposals are under consideration.

Cassidy is pushing for $15 billion for the highest-risk participants in the individual market as a way to shore up the teetering state-based exchanges. At a meeting Wednesday with his Republican colleagues, Cassidy shared a document showing that since the health care law exchanges began in 2014, an influx of sicker individuals was the primary culprit in driving up premiums. Providing $15 billion for high-risk populations would pay off in the long run by helping bring down premiums for everybody else, Cassidy argued.

“It is partially offset because you have lower subsidies,” he said “So $15 billion in market stabilization only costs you $5 billion because there is lower subsidies.”

Sen. Shelley Moore Capito, R-W.Va., said she has not seen any legislative text yet for her chamber’s bill. The lawmaker represents a Medicaid expansion state where the opioid epidemic has hit hard. She’s among the GOP lawmakers looking for a gradual end to the Medicaid expansion, which has helped many states get more people into treatment for narcotic addictions. Moderates want a seven-year phaseout.

“I’d phrase it as a seven-year transitional period either to Medicaid or to coverage that’s as good as the Medicaid coverage that folks are on,” Capito said Wednesday. “I’ve said repeatedly I don’t want to drop anybody off, so I’m not phasing anybody out from anything.”

The process of drafting a bill appears to be taking longer than GOP leaders had estimated, with even some Republican senators confused about the current state of play. Sen. Rand Paul, R-Ky., said senators were told at the Wednesday lunch that the full bill has not yet been sent to the Congressional Budget Office.

“That question was asked directly because we get a little concerned when we hear from people that it’s already gone to CBO,” Paul said.

Although Republicans had hoped to vote on the measure by the Fourth of July recess, leadership has been careful to avoid setting any concrete deadlines.

“Our goal here is to move forward quickly. The status quo is unsustainable. We all know something has to be done. Something has to be done soon,” Senate Majority Leader Mitch McConnell of Kentucky said. “We’re working hard to get there.”